MGJ..as usual thanks for keeping us informed. Unbelievable that VOD wins the sweepstakes to get into China and reports significantly better than expected #'s and the stock is down today!!
The China news is huge b/c for a long-time the big concern about getting into China was how an operator could get their money out since operators (rather than manufacturers such as QCOM, MOT, ERICY, etc.)have some very complicated rules that are subject to State control, accounting, and interpretation. By investing via Hong Kong markets, the investment is much more liquid and can be accretive to value and gives VOD an exit if things don't work out. Although only a small investment in % terms, in China, relationships and "foot in the door" is everything. Given current roaming arrangements, opportunity for further economic synergies, management best practices, etc.- this is a nice deal economically and strategically for VOD. Really disappointing not to see the Street reward VOD for this b/c obviously CHU could have had any partner in the world they wanted but chose VOD to be the single partner. Can't get a bigger vote of confidence than that.
On the better than expected customer additions front, the profitability concerns about handset subsidies are without merit. VOD has economies of scales on handset purchasing that its competitors can't match. Thus, they can afford to have greater subsidies for the customer at the point-of-sale and still net out same or better on customer profitability. And even if they have merit, each customer generates about a 36-48 month life of value at about $50 per month or over $2000 per subscriber. Assuming monthly costs (billing, customer care, network, etc.) are 30% of the amount (conservative) than each customer is still worth about a $1400 per. After handset subsidy and commission-customer is still accretive to VOD's value. This is a non-issue IMO. Anyway you look at it, the numbers are impressive. Just looks like we'll have to wait another month for earnings so VOD can prove that the growth is profitable as well although any rookie analyst should be able to see that it is.
For whatever reason- the street is just looking for reasons to not rally behind the stock- even in the face of very positive news events. Obviously, in the long-term, VOD will prevail- but just hope we're not dead by the time the stock rebounds!! |
